AAM My home is my pension

My home is my pension – but should it be?

While almost one in five of over-50s are planning to use some of their property wealth to fund their retirement, this can be a tricky strategy.

How will you fund your retirement? While the accepted wisdom is that we should be using our pensions to pay for our living costs in later life, the meteoric rise of house prices over the past few decades means that many people are turning to alternatives.

A recent study suggested that nearly one in five of over-50s are planning to use some of their property wealth to fund their retirement*. A quarter of those who are planning to do this say they feel that a property is a more reliable choice than a pension.

But is reckoning on the roof you shelter under to pay for retirement a good idea? Here are some of the pros and cons of ‘property as retirement fund‘ and how to make it work for you.

Your home as pension – why is it tempting?

It is no wonder that so many of us feel we could use our home to fund retirement: over the past two decades many properties have out earned their owners.

A semi-detached house in London bought for the average price of £96,000 in 1995 would now be worth nearly £600,000, an average increase of nearly £20,200 annually**.

This means that many older people are sitting in larger mortgage-free properties that are worth a substantial amount – in many cases far more than conventional pensions.

That money could be released in one of two ways: by selling it and buying something smaller, or by using a type of finance known as equity release, where you are able to live in the property, but release capital from it. It is like taking out a new mortgage, but often with the interest you accrue added to the eventual amount owed.

The large sums of money involved, coupled with the decline in the availability of final-salary pensions, mean that for many people their home will represent the most valuable saving for retirement they have.

Your home as a pension: the drawbacks

The biggest disadvantage of relying on your home as a pension is that you will still need somewhere to live.

Downsizing your home to release equity to live on can often mean paying a large tax bill on a new property purchase as well as legal costs. The equity release alternative involves interest rates that are typically higher than on conventional mortgages.

What about buy-to-let?

Many people buy a rental property to provide income for their retirement, which avoids the issue of your retirement nest egg also being the roof over your head.

But governments around the world have introduced changes to the taxation of buy-to-let properties which have made this option less attractive in recent years, both in terms of the costs of purchasing and the taxes payable during and at the end of your period of ownership.

The regular income and (sometimes) capital gain on a buy-to-let property can be an attractive way to fund retirement, but it is really important to understand the tax position and associated costs with buy-to-let investments.

A good wealth manager will help you to decide whether this option will provide you with the retirement income you want, while you may also require a good accountant to talk through the various tax allowances and costs involved.

A hybrid approach

For many of us, changes to the retirement landscape mean that we must take a multipronged approach to funding retirement, which may include our home as well as our pension pot or pots, and may also involve other assets such as a buy-to-let property or savings accounts.

Using each of these assets to build a retirement pot and then spending it in a tax-efficient manner may seem daunting, and many people choose to get professional help with their planning.

A qualified wealth manager will be able to speak to you about how much to invest to build up a large enough pension pot over time, as well as which assets to use first to fund retirement to ensure that you make the most of all the different tax breaks available.

They will also be able to help with investing your pension in line with your personal risk-tolerance level so that you are able to realise your dreams of a comfortable retirement.

Equity release will reduce the value of your estate and can affect your eligibility for means-tested benefits.

In an increasingly complex and competitive world, expert financial advice is key to securing your future. So, contact us today for a free financial planning consultation and get all your financial affairs in order.


*Source: https://www.onefamily.com/our-story/media-centre/2018/property-over-pension/

**Source: https://landregistry.data.gov.uk/app/ukhpi/browse?from=1977-06-01&loca

Important information

Pensions and investments may fall as well as rise in value and you may not get back what you put in. Tax treatment varies according to individual circumstances and is subject to change.

This article is intended for general circulation and information purposes only. It may not be published, circulated, reproduced or distributed in whole or part to any other person without prior consent of AAM. This article should not be construed as an offer, solicitation of an offer, a recommendation or provision of financial advice. The information does not take into account the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a licensed financial adviser before making any decisions. Whilst we have taken all reasonable care to ensure that the information contained in this article is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness. Any opinion or estimate contained in this article is subject to change without notice. AAM Advisory Pte Ltd is licensed by the Monetary Authority of Singapore, FA Licence no. 100032.

Request a complimentary consultation

Error: Contact form not found.

International Adviser, Best Practice Adviser Awards (Singapore)

We were winners in the following categories:

  1. Best Adviser Firm (2020)
  2. Excellence in Professional Development (2020)
  3. Excellence in Investment Planning (2020)
  4. Excellence in Professional Development (2020)
  5. Excellence In Professional Development (2019)
  6. Best Adviser Firm, by Region (2018)
  7. Excellence In Operational Efficiency (2018)
  8. Excellence In Professional Development (2018)
  9. Excellence In Marketing & Client Engagement (2017)
  10. Excellence In Social Media (2017)
  11. Excellence In Investment Planning (2016) 
  12. Excellence In Professional Development (2016)

Expat Living Reader’s Choice

We are proud to be voted the Gold Winner in the best Financial Planning Category.
AAM gold winner expat living

Singapore Financial Advice Guide

AAM Singapore Financial Advice Guide 2020-01

Request our complimentary Singapore Financial Advice Guide, over 60 pages of essential information for Singapore residents and all newcomers.